Gift-tax valuation must be fixed on the transfer date, while bona fide debt write-offs can still be treated as deemed gifts.

For gift-tax valuation, the taxable element in gifts made through gift deeds must be determined as on the date of transfer, and the present value of binding stipulations in favour of charitable trusts may be deducted from the amount transferred to the donee companies. Subsequent events cannot be used to revise that valuation under the Gift-tax Act. The write-off of debts owed by close relatives was treated as a deemed gift because the extinguishment of the liabilities was not shown to be bona fide and the surrounding circumstances supported a taxable transfer.

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Issues: (i) Whether, in valuing gifts made under the gift deeds, the present value of the stipulations in favour of the charitable trusts had to be deducted from the amount transferred to the donee companies, and whether subsequent events could be taken into account for that valuation; (ii) Whether the write-off of the amounts due from close relatives amounted to a deemed gift liable to gift tax.

Issue (i): Whether, in valuing gifts made under the gift deeds, the present value of the stipulations in favour of the charitable trusts had to be deducted from the amount transferred to the donee companies, and whether subsequent events could be taken into account for that valuation.

Analysis: The Tribunal held that the Gift-tax Act is a complete code and that the concept of gift under that Act is wider than under the Transfer of Property Act. A stipulation creating a binding obligation to pay income to charitable trusts had value and reduced the taxable element in the hands of the first donee companies. The Tribunal agreed that the valuation should proceed by determining the value of the charitable stipulations as on the date of the gift. However, it rejected the approach which revised the valuation on the basis of later non-payment of amounts to the charities, holding that subsequent events cannot be imported into valuation under the Gift-tax Act.

Conclusion: The taxable gift was to be computed by reducing the credit-balance gift to the companies by the present value of the charitable stipulations, but only on the basis of valuation as on the date of execution of the gift deeds. The assessee succeeded on the objection to use of subsequent events and failed on the general challenge to the deduction principle.

Issue (ii): Whether the write-off of the amounts due from close relatives amounted to a deemed gift liable to gift tax.

Analysis: The Tribunal applied the rule that release, discharge, surrender, or similar extinguishment of a debt can constitute a deemed gift where the transaction is not bona fide. On the facts, the debts were written off without any satisfactory explanation, the beneficiaries were close relatives capable of repayment, and the surrounding circumstances supported the inference of a taxable gift.

Conclusion: The write-off of the two debts was rightly treated as a deemed gift and the addition was sustained against the assessee.

Final Conclusion: The appeal by the Revenue was dismissed, while the assessee's appeal succeeded only to the limited extent of insisting that valuation be made as on the date of the gift deeds and not on subsequent events; the treatment of the debt write-offs as taxable gifts remained undisturbed.

Ratio Decidendi: For gift-tax purposes, the value of a gift must be determined as on the date of the transfer, and subsequent events cannot be used to rework that valuation; further, an extinguishment of debt may be treated as a deemed gift where the surrender or release is not bona fide.

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